Farm economies rise and fall with corn and soybeans
Perhaps no single number is more critical to the Steele County economy than the price of corn.
Feed corn, and to a lesser degree soybeans, dominate the agricultural output of southern Minnesota. Steele County growers planted 111,000 acres of corn in 2017, and harvested more than 23.2 million bushels. At that scale, it’s no wonder that the price of corn is a key indicator of local economic success.
“It amounts to literally tens of millions of dollars in Steele County if the price of corn is up or down 20 cents a bushel,” said Gary Joachim, president of the Steele County Corn and Soybean Growers Association.
When crop prices are up, corn and soybeans can lift the entire county, increasing land values and tax revenues and powering a vast secondary economy of equipment dealers, distributors and contractors. But when prices are down, as they have been for the past several years, the entire agricultural sector must bunker down and make things last until commodities rise again.
But despite the current lean times, farmers say that for better or for worse, corn and soybeans are the only games in town, with a vast infrastructure built up across the region to handle their crops. Joe Williams, grain operations manager with Lake Crystal Cooperative in Hope, said that even as prices creep lower year by year, corn and soybeans remain the most profitable options for farmers to grow.
“Right now we don’t see any major areas being left unfarmed corn and beans,” he says. “… It seems the farmers are pretty resilient, and somebody farms that ground.”
Here’s why corn and soybeans remain king for Steele County agriculture.
Crazy for corn
Matt Heers knew the boom years were too good to be true.
Heers farms about 2,500 acres of corn and soybeans northeast of Owatonna with his parents and brother. He started in 2009, a time when corn was building toward record-high prices peaking at more than $8 per bushel in 2012.
“That run-up in prices was definitely too much of a good thing,” he says now. “We had two years of global weather issues and droughts in different parts of the world, and probably the biggest thing is the ethanol industry really took off and ate up a bunch of the corn we’re growing in the United States.”
In 2017, according to the Minnesota Department of Agriculture, the state produced 1.48 billion bushels of corn, ranking fourth in the nation and generating 26 percent of the state’s agricultural cash receipts — a total value of $4.5 billion, according to the USDA.
That may sound like a lot of money, and it is. But in 2012, with a then-record production of 1.37 billion bushels, Minnesota’s corn crop sold for $7.4 billion. That’s a huge difference in profitability for farmers to absorb.
Corn has long been a staple crop in Minnesota, and for good reason. Not only is there an existing infrastructure of grain elevators, rail lines and more to make it easy to transport to market, but there’s always a demand for the crop, not just locally but around the world. Of Minnesota’s 2017 corn crop, 47 percent was exported, with top consumers including Mexico, Japan, South Korea, Columbia and Taiwan; 32 percent was processed domestically, including ethanol production and corn oil and syrup; 14 percent went to domestic animal feed, and seven percent to all other uses, including canning or organic crops (only .24 percent of the state’s corn production) for human consumption.
Perry Aasness, executive director of the Minnesota AgriGrowth Council, said generations of growers and agribusiness have honed the business of growing staple feed crops in Minnesota to a science.
“The economics for corn and soybeans, because of technology and seed, because of production capacities for corn and soybeans, because of the need for livestock, all of those are reasons corn and soybeans are dominant in southern Minnesota,” he said.
Crystal Valley Cooperative in Hope took in about 6.5 million bushels of corn in 2017, and 1.5 million bushels of beans. The cooperative has a rail loop that can accommodate 110-car grain shuttle trains for Union Pacific, and also occasionally ships corn by truck to local feed operators or ethanol plants. Their main markets, though, are far beyond the state’s borders.
“[Crystal Valley] connects the local farmer to an end user he can’t reach on his own,” Williams said. “A lot of our corn trains either go to Imperial Valley in the southern part of California for dairy feed, or to Arizona, or we had quite a few to Texas a few years ago for chicken feed.”
But when corn prices are low, even the cooperatives can find it hard to find a profitable market. As of mid-February, Crystal Valley had a huge pile of corn under tarps behind its silos, waiting for a favorable moment to sell.
“The carry and basis structures will dictate when we sell corn,” Williams said. “Its when the best merchandising opportunity is.”
Beans. Lots of beans.
For any given patch of Steele County farmland not devoted to corn, it’s a good bet it will instead be planted with soybeans.
Steele County farmers planted more than 87,000 acres of soybeans in 2017, harvesting almost 4.8 million bushels. While farmers say corn usually can be grown year after year, soybeans tend to produce much lower yields in consecutive plantings, so most farmers will rotate the two.
Like corn, soybean prices have been on the downswing for several years, but have swung less dramatically than corn, encouraging some farmers to increase their plantings. USDA statistics show that over the past few years, farmers have planted fewer acres of corn and more of soybeans in Steele County.
“Corn drives the bus I guess, but in the last couple years, especially with input costs, soybeans have become a more interesting option,” Heers said.
As with corn, only a tiny fraction of soybeans grown go directly to human consumption. 54 percent of Minnesota’s 2017 crop was crushed for animal meal and oil, while 44 percent was exported, and two percent went to all other uses. While organic or non-GMO soybeans are a growing market, including through SunOpta Grains and Foods in Hope, the main consumers of soybeans are still hogs, poultry and dairy cattle.
At Lake Crystal, most of the beans they buy go by rail to St. Louis, there to load on barges, or else by rail straight to ports in the Gulf of Mexico. The Department of Agriculture identifies major export markets for Minnesota soybeans as China, Mexico, Indonesia, Japan and Taiwan.
Aasness said as of February, soybeans recently have gotten a modest boost on the global market, although still nowhere near the heights of past years.
“We’ve gone through these upturns and downturns before, and things can change pretty quickly,” he said. “We operate in a global economy today, and even if you look at the markets in the past couple weeks, because of concerns for the weather in Brazil and Argentina … that’s going to help our prices.”
Soybean growers have been hit to a lesser degree by the same cycle as corn, in which the record prices of the early 2010s resulted in much more land being cultivated and a resulting oversupply.
“That’s what’s keeping corn prices low right now. There’s just lots of supply,” Williams said. “We compete with the Black Sea region, South America, for grain. When we had the boom, that enticed a lot of other areas to grow corn. … Same could be said for beans. For beans, the stocks aren’t as burdensome, but we’re not running out by any means either.”
Riding out the lean years
For prices to truly rebound for either corn or soybeans, it will likely take either a major now source of demand, much like ethanol was a decade ago, or a major cut in supply. And nobody is expecting another “black swan” industry to crop up any time soon.
“Unless we take acres out of production, which no one really foresees, we’re going to need some sort of crop threat or crop failure, a drought or something to take away the supply,” Williams said.
After years of clement weather, and with ethanol now facing its own oversupply problems, farmers are fighting to scrape the greatest possible yield from their land, even as that contributes to the overall surplus on the market,
“It’s been about four years without any serious crop problems anywhere in the U.S.,” Joachim said. “Also, we increase our yield about one percent every year [with] better technology, better seed, just more knowledge being applied to the problem.”
If prices drop low enough, farmers might even have to look at growing other crops, which would have the additional benefit of potentially refreshing the soil through a broader rotation.
“We’d be better off if we had a third crop that yielded higher profits we could put in our rotations,” Joachim said. “The farmers that are growing canning crops and other things are also experimenting with cover crops, which are kind of for the same purpose.”
The problem is that, not only do most farmers not have the equipment and infrastructure to readily switch to other crops, but there are no obvious candidates for what else to grow. There is no market that could support a sizable fraction of U.S. cultivation switching to hay or oats.
“It would be great if we could find a third crop, something else we could grow and fit into our rotation system,” Heers said. “That’s kind of the holy grail, but right now we don’t have anything that’s really promising. That’s the reality we live with.”
And so farmers are trying to hold on until the market for their primary cash crops bounces back, an endurance test that becomes more and more challenging every year.
“Agriculture markets are cyclical, we’ve seen that over the decades,” Aasness said. “Farmers, like any other business, can typically weather a year or two where profits aren’t quite there, but you start going three, four, five years like this, it starts eroding their equity, and that causes a concern.”
Adding to the squeeze is that many of the products and services farmers rely on, from combines to fertilizer, are still sold at boom-year prices, Heers said.
“All of our input costs, they all went up when the price of corn and soybeans went up, and all of those suppliers are reluctant to lower their prices. … If the prices were to come down, we could have a sustainable ag economy at these prices, but we’re kind of getting pinched from both sides.” he said.
Joachim said crop insurance and federal farm assistance can also mitigate some of the losses, but such programs generally are calculated based on average prices in recent years, so the longer the doldrums last, the lower the price floor for assistance. Add it all up, and farmers have to cut back wherever they can, he said.
“You try to get by on the bare minimum of fertilizer. You put off some things that you might have done, like remodeling the house,” he said. “If you aren’t making any money, you probably aren’t putting any money aside in an IRA plan or things like that.”
Farmers also are bracing for the possibility it will get even worse, especially if President Trump follows through on threats to end or substantially renegotiate the North American Free Trade Agreement. Canada, and even moreso Mexico, are major markets for Minnesota crops, Aasness said.
“We produce far more than what we can consume, obviously, in Minnesota, so having access to those export markets is extremely important,” he said, noting that America’s withdrawal from the Trans-Pacific Partnership also has hurt farmers. “You start looking at those missed opportunities, and they start to pile on to other problems we have.”
With or without those trade deals, farmers are left to earn as much from the land they have and wait for the market to change.
“The kind of scary thing is, if we have another big bumper crop this year, it will just drive prices down even further,” Heers said. “The best thing that could happen is if there’s some sort of large weather disaster, but obviously you don’t want that to happen to farmers in the U.S., or farmers anywhere.”
By the numbers:
Steele County crop records 2014-2017 courtesy USDA
|Corn – acres planted|
|Corn – bushels harvested|
|Corn – yield per acre|
|Soybeans – acres planted|
|Soybeans – bushels harvested|
|Soybeans – yield per acre|
William Morris got his start in the newspaper trade as a recurring editorial intern in Wisconsin and has been writing about business, government and crime at the Owatonna People’s Press since 2015. He now splits his time working with the newspaper and as Associate Editor for Forge.